American Businesses Claim Discrimination in Russian Market

Russia is breaking World Trade Organization (WTO) rules by hindering the work of U.S. companies in its market, which leads to a decrease in the quality of goods, the American Trade Association has accused, according to RBC.

The U.S.-Russia Business Council (USRBC) has said in comments for the annual report of the U.S. Trade Representative to Congress that a number of rules of trade in the Russian market create obstacles for the work of American companies, contrary to the norms of the WTO and other international agreements.

The comments were posted on the Council’s website, and the U.S. Trade Representative’s report on Russia’s compliance with WTO obligations will be ready by December. USRBC is based in Washington and represents the interests of Russian and American companies in the field of bilateral relations.

The Russian authorities have set their sights on localizing production, but in order for foreign investors to receive the status of a Russian producer from the Ministry of Industry and Trade, a special investment contract (SPIC) must be concluded with the authorities, USRBC reminds.

The SPIC (pdf) provides some benefits (for example, tax breaks), but also sets hard targets (in terms of production, number of jobs, the share of foreign components, etc.,) the Council says. In 2017, the Russian government tightened the localization criteria, so for many foreign investors, the additional requirements outweigh the benefits and preferences, USRBC notes. For example, sometimes SPIKs require exporting up to 50% of the output, according to the organization, and this is “unrealistic and commercially impractical.”

“SPIK is a privilege for investors who are localizing on the territory of Russia, and the absence of SPIK is not discrimination,” says analyst Alexander Knobel, director of the Center for International Trade Research at RANEPA.

Since 2013, Russia has been an observer to the WTO Government Procurement Agreement (accession negotiations are underway), says Vladimir Salamatov, Director General of the International Trade and Integration Research Center.

Accordingly, the current national regime of Russia in this area does not contradict the norms of the WTO, he points out. Government procurement is a difficult issue in all countries, access to them is always more limited, adds Knobel.

“Under the terms of accession to the WTO, Russia had to enter into negotiations on the parameters for admission to public procurement, which it did,” he says. “Negotiations are continuing, so it cannot be argued that Russia is currently violating WTO rules in this area.”